California Could Be the Safety Net That Unlocks Factory-Built Housing

California could serve as a financial backstop to factory-built housing projects under a new proposal in the state Assembly.

Under AB 2166, a new California Housing Finance Agency would offer state-backed credit backstops to surety companies. These companies would then be able to issue payment and performance bonds to support factory-built construction projects.

Assembly Democrats Buffy Wicks and Juan Carrillo authored the bill, which is part of a package of six bills aimed at bolstering the factory-built housing sector, as the state grapples with a severe housing shortage.

The bill aims to reduce the risk of factory-built housing—also known as modular housing. In this scheme, standardized building materials or modules are prefabricated off-site and then delivered to individual home plots.

AB 2166 would make projects whole in case of factory failure, helping reduce the financial risk of undertaking such housing projects.

"California is a leader in innovation—it's time we apply that mindset to solving our housing crisis," Wicks said. "We're still building homes like we did 100 years ago, and it's not enough to address the housing shortage we’re facing today."

The state-by-state housing affordability report card from Realtor.com® gives California an F. Democratic Gov. Gavin Newsom has pressed reforms to allow building more housing in the state, especially more dense housing in areas that have previously resisted it.

Factory-built homes face challenges

Wicks and Carrillo said the ideas came after several months of research, tours, and public hearings. UC Berkeley’s Terner Center for Housing Innovation published a paper in March on the subject.

While standardized construction makes factory-built housing cheaper or faster in theory, this construction type has yet to advance beyond pilot programs in the state. UC said in its research that factory builders struggle to find investment from private markets. The state stepping in and assuming some risk would improve "confidence in the process."

“Our research finds that scaling factory-built housing in California depends less on technological advancement and more on addressing barriers across policy, financing, and project delivery," Ben Metcalf, managing director at the Terner Center, said in a statement.

Ultimately, UC suggested two financial ideas. California could develop a state bonding mechanism for factories. This could increase access to bonding that often blocks these developments early in the process. The other idea was a state loan guarantee program that would let the state assume a portion of loan risk, while private lenders still originate the loans.

California isn't the only state to consider factory-built homes. Several states have explored programs to promote them, especially as starter homes. Local regulations are a challenge, though.

Bills aim to cut factory-built regulations—and focus on speed

Much of the housing package is aimed at reducing regulatory burdens on building factory housing.

The bills create protections for factory homes throughout the regulatory process. One creates a binding statewide interpretation of the building code, so builders can go from one municipality to another and not have to deal with different codes.

Another bill prohibits jurisdictions from imposing building standards that exceed the state minimum on factory-built homes. A fourth bill would allow statewide building inspectors for on-site factory-built projects.

Then, another provides a systematic review and revision of state funding programs to see if they can be applied to factory-built housing. A final bill changes shipping procedures and is aimed at reducing transportation costs for factory-built housing materials.

Industry officials reacted positively. Alex Shea, CFO of US Offsite, called the ideas "a watershed moment for factory-built housing in California.

"Our industry—like a powerful river held back by a dam—has built significant innovation and production potential but remains stagnant without outlets," Shea said.